Secondary markets value Twitter at $4.5 billion

A bird in the hand

There's been a lot of talk about a mobile Internet speculative bubble recently, not least here and on our sister site mobile-device.biz. Our focus has been on chip stocks, but the two companies that get most of the attention are social networking giants Facebook and Twitter.

In our opinion they are very much representative of the mobile Internet as it's mobile devices that really enable users to share their experiences easily and spontaneously, as soon as they happen.

Neither company has had an IPO yet, but they still have shares, and the trading of them on secondary markets provides a decent sense of how the market values them. This sort of thing led to a formal valuation of $50 billion for Facebook earlier this year, and now reports are emerging of the acquisition of ten percent of Twitter.

The acquirer is JP Morgan, reported the FT, for its Digital Growth Fund. This is a similar vehicle to that created by Goldman Sachs to offer-up Facebook stock to its clients. It values ten percent of Twitter at $450 million, providing an overall valuation of $4.5 billion. As is so often the case, the WSJ and NYT uncovered sources within hours of of the FT story, which independently state the same.

But Michael Arrington of TechCrunch, who has made a career out of reporting on what Silicon Valley investors are up to, reckons those reports are wide of the mark, specifically where they claim this stake is a new sale of shares by Twitter.

Twitter is apparently quite happy with the amount of funding it has already raised, says Arrington, and this JP Morgan fund has accumulated Twitter shares by buying stock from Twitter employees and early investors. He doesn't, however, question the valuation of $4.5 billion.

It's impossible to tell whether this valuation is accurate. If there is a speculative bubble right now, we don't think it's as irrational as the dotcom bubble of the late 90s. In the case of social networking sites, the currency is traffic and the market is betting these companies will find a way of monetising that traffic sooner or later.